Social Media Doesn’t Constitute Banking 2.0–Apple and Google Get That

April 12, 2012

While I was at SXSW last month I attended a panel (yes I know attending panels at SXSW is rare!)entitles Financial Services & Technology Rockstar Women. The panel promised to allow attendees to “Hear from global financial services and technology leaders, who happen to be women, how they use social media to drive innovation and change in this highly regulated industry.”

The panellists, all involved in social media outreach for financial institutions, discussed how “using social media to drive innovation and change – despite the heavy regulations around the financial services industry – can be inspiring to any organization or industry that is faced with the challenges of working with other departments.”

I’ve spent a long time thinking about and talking to folks about what Banking 2.0 should actually look like and so it was serendipitous to happen upon this panel. Despite some some very smart people talking, I was left feeling a little flat post panel – and much of this can be attributed to the fact that i strongly feel that simply putting a social layer on an archaic system, while an admittedly good way of building engagement, is simply lipstick on a pig. As I tweeted during the panel, social media for the financial services industry is Banking 1.1 at best, I’m still waiting for Banking 2.0.

So why does it matter, and why are banks needing to think about this stuff very seriously? Well a recent post over on The Register brought up some very interesting statistics. Apparently 50% of Apple product users would bank with Apple, where they to introduce financial services. This is the organization that already has people’s payment details, an extensive history of their buying and spending patterns, connections to consumers through services and devices they chose to use (rather than ones they’re forced to use because of legacy reasons).

I spent some time recently talking with some people that provide services for banking institutions to deliver their core services via mobile. I talk to people doing social media outreach for banks. I speak with teams trying to redesign internet banking to look a little more bling. All of these are examples of what I see as lipstick on a pig – not changing the very core of the banking offering.

So why do financial institutions have the ability to essentially tinker around the edges rather than rebuilding from the core? Well for the longest time the financial sector has been a heavily regulated industry with massive artificial barriers to entry – Governments, central banks, regulatory authorities and the like all put barriers in place to competition. But I don’t see those barriers remaining in place for too much longer. As I said in a fit of exasperation recently, banks are fundamentally working on a flawed model, it’s only regulation that keeps them afloat.

So who will walk into this void? Three organizations that have varying levels of strength in the following;

Monetization models that are based primarily on the acquisition and analysis of personal data

The network effect of a huge userbase and the inter-connectedness of those users

An existing financial relationship between the vendor and end users

A strong converged presence across different devices

IP and/or an understanding of broad horizontal disruption

If I were a bank, or a decision make within a bank,I’d be looking over my shoulder at both Google and Apple as the strongest candidates to reinvent banking. Google because it can do so without direct monetization being the primary driver and Apple because they have been so successful at disrupting traditional industries to date.

Banks will continue to reinvent the way they communicate with customers, and this is of itself a good thing. But in the mean time they are staring down the barrel of some challeneges that make external communications look like an absolute walk in the park – carnage is going to ensue.

1 Comment

Ben I fully agree with your notion of “lipstick for pigs” but I think that the problem goes even deeper. The basic flaw of banks’ (and the vast majority of other financial institutions and insurances) business model is that they are not helping their customers to create value but first and foremost their owners. This flaw they are covering pretty well by making interactions with my account easier.

Banks are a commodity – just that they haven’t accepted that yet.

We are depending on banks and that makes it fairly easy for them. The underlying premise of everyone having equal negotiation power is long gone. The consumer needs (and likely also will) regain far more power here.

What do I need an account for:
– Well, in this world there is no way without; having one is purely a commodity, it is not a value creator
– managing money, having the ability to have it work for me. Here the value creation could start if my value wouldnt be sucked away by the bank, whether they actually help me creating value or not (and mostly their consulting is poor, just well documented to make sure that they are not at fault if things go belly up for me)
– having the ability to pay bills, nationally and internationally. Well, an international money transfer using a bank lasts a long time (why?) is very expensive (why again?) and, worst of all: all banks make it my risk – while happily accepting my money for the transfer …

Would Google or Apple be any different?

Ultimately the players that should walk into the void should first and foremost demonstrate the strong ability and willingness to put the customer first and base their services on the premise that significantly contributing to their customers creating value makes money for them. This is a total mindshift from where we are now.